{"id":41135,"date":"2020-05-06T14:15:32","date_gmt":"2020-05-06T22:15:32","guid":{"rendered":"https:\/\/www.credible.com\/blog\/?p=41135"},"modified":"2022-04-12T15:16:13","modified_gmt":"2022-04-12T22:16:13","slug":"529-plan-invest-in-a-college-savings-account-early","status":"publish","type":"post","link":"https:\/\/www.credible.com\/blog\/student-loans\/529-plan\/","title":{"rendered":"529 Plan: Invest in a College Savings Account Early"},"content":{"rendered":"<p>A 529 plan is a type of college savings account that helps you save on taxes while putting money away for college. While it\u2019s a good idea to start saving as early as possible, you can start a 529 plan for your child or yourself at any time.<\/p>\n<p><b>Here\u2019s what you need to know about 529 plans:<\/b><\/p>\n<ul>\n<li><a href=\"#there-are-two-types-of-529-plans\">There are two types of 529 plans<\/a><\/li>\n<li><a href=\"#529-plans-can-only-be-used-for-qualified-college-expenses\">529 plans can only be used for qualified college expenses<\/a><\/li>\n<li><a href=\"#beware-of-529-withdrawal-penalties\">Beware of 529 withdrawal penalties<\/a><\/li>\n<li><a href=\"#529-plan-could-impact-students-financial-aid-package\">A 529 plan could impact a student\u2019s financial aid package<\/a><\/li>\n<li><a href=\"#529-plans-can-help-students-reduce-need-to-borrow-for-college\">529 plans can help students reduce the need to borrow for college<\/a><\/li>\n<\/ul>\n<p><a name=\"there-are-two-types-of-529-plans\"><\/a><\/p>\n<h2>There are two types of 529 plans<\/h2>\n<p>Before you sign up for a 529 plan, it\u2019s important to learn about the two different types. Here\u2019s how both of them work:<\/p>\n<ul>\n<li><b>Education savings plan: <\/b>The typical 529 plan account works a lot like a Roth IRA. While you don\u2019t get a tax deduction for contributions, withdrawals are tax-free as long as you use the funds for qualified education expenses. This lets you avoid capital gains taxes on your college savings.<\/li>\n<li><strong>Prepaid tuition plan:<\/strong> A prepaid tuition plan allows you to save over time for your child\u2019s education while locking in current tuition rates at certain schools. Because the cost of college tends to go up over time, this can lead to significant savings. But keep in mind that this type of plan only applies to participating public in-state colleges and universities, which means making a long-term commitment to those schools.<\/li>\n<\/ul>\n<p>All states offer some form of 529 plan, according to the<a href=\"https:\/\/www.sec.gov\/answers\/fa_529plan\"> U.S. Securities and Exchange Commission (SEC)<\/a>. Keep in mind that while all states sponsor education savings plans, only 12 sponsor prepaid tuition plans. A large group of private colleges and universities throughout the U.S. offer <a href=\"https:\/\/privatecollege529.com\/\">private prepaid tuition plans<\/a>, too.<\/p>\n<p>Most state 529 plans are available online. Head to the appropriate state\u2019s website to sign up for the plan you\u2019re interested in. Just like with any other financial account, you\u2019ll need to enter both your personal contact and financial information (like your Social Security number) to start a new account.<\/p>\n\n<table id=\"tablepress-276\" class=\"tablepress tablepress-id-276 table table-border-top table-rounded table-no-img-margin table-capitalized-column-titles\">\n<thead>\n<tr class=\"row-1\">\n\t<th class=\"column-1\"><strong>529 plan<\/strong><\/th><th class=\"column-2\"><strong>Offered by<\/strong><\/th>\n<\/tr>\n<\/thead>\n<tbody class=\"row-striping row-hover\">\n<tr class=\"row-2\">\n\t<td class=\"column-1\">Educational savings plan<\/td><td class=\"column-2\">All 50 states<br \/>\n<small>(including the District of Columbia)<\/small><\/td>\n<\/tr>\n<tr class=\"row-3\">\n\t<td class=\"column-1\">Prepaid tuition plan<\/td><td class=\"column-2\">FL, IL, MD, MA, MI, MS, NV, PA, TN, VA, TX, and WA<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n<div class=\"basic-box\" style=\"border: 1px solid #E2E4E6;\"><div class=\"basic-box__inside\"><b>Do I have to use my state\u2019s plan?<\/b> Nope! Every state offers a 529 plan, but you can sign up for another state\u2019s plan as long as it accepts out-of-state residents. Be sure to compare your state\u2019s plan with other options before deciding what\u2019s best for you.<\/div><\/div>\n<p><a name=\"529-plans-can-only-be-used-for-qualified-college-expenses\"><\/a><\/p>\n<h2>529 plans can only be used for qualified college expenses<\/h2>\n<p>A 529 plan can help you save for college and avoid taking out <a href=\"https:\/\/www.credible.com\/student-loans\">student loans<\/a>, but there are strings attached. You can use it only for qualified education expenses \u2014 and for up to only $10,000 per year.<\/p>\n<p>Funds are eligible for use at accredited colleges, universities, vocational schools, or other postsecondary educational institutions. Costs related to K-12 elementary or secondary public, private, and religious schools are also covered.<\/p>\n<div class=\"basic-box\" style=\"border: 1px solid #E2E4E6;\"><div class=\"basic-box__inside\"><b>Qualified education expenses under a 529 plan<\/b><\/p>\n<ul>\n<li>Tuition<\/li>\n<li>School fees<\/li>\n<li>Required books and supplies<\/li>\n<li>Required equipment<\/li>\n<li>Room and board (within approved limits)<\/li>\n<\/ul>\n<p><b>Expenses that are NOT covered by a 529 plan<\/b><\/p>\n<ul>\n<li>Travel<\/li>\n<li>Research<\/li>\n<li>Clerical help<\/li>\n<li>Equipment that isn\u2019t specifically required for your program<\/li>\n<\/ul>\n<p>For example, if your school requires students to have a laptop, your laptop is a qualified education expense. But if a laptop isn\u2019t required, you can\u2019t pay for it with your 529 plan.<\/div><\/div>\n<p><b><i>Learn More: <\/i><\/b><a href=\"https:\/\/www.credible.com\/blog\/student-loans\/how-to-apply-for-student-loans\/\"><b><i>How to Apply for Federal and Private Student Loans<\/i><\/b><\/a><\/p>\n<p><a name=\"beware-of-529-withdrawal-penalties\"><\/a><\/p>\n<h2>Beware of 529 withdrawal penalties<\/h2>\n<p>The tax benefits of a 529 plan are available only if you follow the rules. Saving and investing for a decade or more can lead to significant investment gains \u2014 and a 529 plan makes them tax-free. But if you withdraw early or for nonqualified expenses, you\u2019ll have to pay taxes and a 10% penalty on gains.<\/p>\n<p>But don\u2019t worry \u2014 if you have leftover money in a 529 plan, you have some options to withdraw without any penalties.<\/p>\n    <script>\r\n        accordions_header_toggle = \"no\";\r\n        accordions_click_track = \"yes\";\r\n        jQuery(document).ready(function($){\r\n            wizard_accordion  = $(\"#accordions-41136.accordions .items\").accordion({\r\n                event: \"click\",\r\n                collapsible:true,\r\n                heightStyle: \"content\",\r\n                animate: (\"linear\", 1000),\r\n                navigation: true,\r\n                active: 999999,\r\n                                beforeActivate: function(event, ui) {\r\n                    if (ui.newHeader[0]) {\r\n                        var currHeader  = ui.newHeader;\r\n                        var currContent = 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      $( this ).parent().removeClass(\"accordion-header-active\");\r\n                $( this ).parent().removeClass(\"ui-state-active\");\r\n            });\r\n            $('#accordions-41136 .items  .accordion-content').each(function( index ) {\r\n                $( this ).hide();\r\n                content = $( this ).text().toLowerCase();\r\n                content_body[index] = content + ' ' + content_head[index];\r\n                n = content_body[index].indexOf(keyword);\r\n                if(n<0){\r\n                    $( this ).prev().hide();\r\n                }else{\r\n                    $( this ).prev().show();\r\n                }\r\n            });\r\n        })\r\n    })\r\n<\/script>\t<div class=\"items\">\r\n\t    <div post_id=\"41136\" header_id=\"header-1554142499803\" id=\"header-1554142499803\" style=\"\" class=\"accordions-head head1554142499803\" toogle-text=\"\" main-text=\"&lt;h3&gt;What happens if the 529 plan isn\u2019t used?&lt;\/h3&gt;\" >\r\n        <div id=\"header-text-1554142499803\"    class=\"accordions-head-title\"><h3>What happens if the 529 plan isn\u2019t used?<\/h3><\/div>\r\n            <div class=\"accordion-icons right accordion-plus fa fas fa-chevron-down\"><\/div>\r\n        <div class=\"accordion-icons right accordion-minus fa fas fa-chevron-up\"><\/div>\r\n            <\/div><div class=\"accordion-content content1554142499803\">\r\n    <p>If you don\u2019t end up using your 529 plan (maybe your child doesn\u2019t go to college), you might have a significant balance left over. If this happens, you can transfer a 529 account to another beneficiary whenever you\u2019d like. The new beneficiary can be a different child or family member \u2014\u00a0or even yourself. For example, if you\u2019d like to take an art or business class at a local community college, you could draw on your unused 529 plan funds for it.<\/p>\n<\/div>    <div post_id=\"41136\" header_id=\"header-1558654640261\" id=\"header-1558654640261\" style=\"\" class=\"accordions-head head1558654640261\" toogle-text=\"\" main-text=\"&lt;h3&gt;What happens if there is leftover money in the 529 account?&lt;\/h3&gt;\" >\r\n        <div id=\"header-text-1558654640261\"    class=\"accordions-head-title\"><h3>What happens if there is leftover money in the 529 account?<\/h3><\/div>\r\n            <div class=\"accordion-icons right accordion-plus fa fas fa-chevron-down\"><\/div>\r\n        <div class=\"accordion-icons right accordion-minus fa fas fa-chevron-up\"><\/div>\r\n            <\/div><div class=\"accordion-content content1558654640261\">\r\n    <p>You can always withdraw funds from a 529 plan if you\u2019re willing to pay taxes on the gains and a 10% penalty. But it\u2019s a good idea to consider other options first. For example, the beneficiary can use up to $10,000 for student loan repayment.<\/p>\n<p>You can also transfer the plan (or what\u2019s left of it if it\u2019s been partially used) to a new beneficiary, such as another child or family member, and keep the benefits.<\/p>\n<\/div>\r\n\t<\/div>\r\n<\/div>\r\n\t\t\r\n<link rel=\"stylesheet\" type=\"text\/css\" media=\"all\" href=\"https:\/\/www.credible.com\/blog\/wp-content\/plugins\/accordions\/assets\/frontend\/css\/jquery-ui.css\"\/>\r\n<link rel=\"stylesheet\" type=\"text\/css\" media=\"all\" href=\"https:\/\/www.credible.com\/blog\/wp-content\/plugins\/accordions\/assets\/global\/css\/themes.style.css\"\/>\r\n<link rel=\"stylesheet\" type=\"text\/css\" media=\"all\" href=\"https:\/\/www.credible.com\/blog\/wp-content\/plugins\/accordions\/assets\/global\/css\/fontawesome.min.css\"\/>\r\n<link rel=\"stylesheet\" type=\"text\/css\" media=\"all\" href=\"https:\/\/www.credible.com\/blog\/wp-content\/plugins\/accordions\/assets\/global\/css\/animate.css\"\/>\n<p><em><strong>Learn More: <a href=\"https:\/\/www.credible.com\/blog\/student-loans\/taxable-income\/\">Do Student Loans Count as Income on My Taxes?<\/a><\/strong><\/em><\/p>\n<p><a name=\"529-plan-could-impact-students-financial-aid-package\"><\/a><\/p>\n<h2>A 529 plan could impact a student\u2019s financial aid package<\/h2>\n<p>It\u2019s important to keep in mind how your assets from saving and investing could impact future financial aid. More savings means less financial need, which could disqualify your child from certain scholarships and loan options.<\/p>\n<p>When <a href=\"https:\/\/www.credible.com\/blog\/student-loans\/applying-for-fafsa\/\">filling out the FAFSA<\/a> (Free Application for Federal Student Aid), you&#8217;ll get an Expected Family Contribution (EFC), which is how much your family is expected to pay toward college. This number takes your assets into account \u2014 including any 529 plans with you or your child as the account holder. Also remember that 529 plan withdrawals count as income for the student, which could affect financial aid packages, too.<\/p>\n<p>If a 529 plan is held by a grandparent, it\u2019s not included in the EFC. In this case, it might make sense to transfer the account to the parents or just make contributions to a parent-owned account. This is because assets have a lesser impact on financial aid than income from 529 plan withdrawals.<\/p>\n<p><b><i>Learn More: <\/i><\/b><\/p>\n<ul>\n<li><a href=\"https:\/\/www.credible.com\/blog\/student-loans\/when-to-apply-for-student-loans\/\"><b><i>When You Should Apply for a Student Loan<\/i><\/b><\/a><\/li>\n<li><em><strong><a href=\"https:\/\/www.credible.com\/blog\/student-loans\/education-tax-credit\/\">The 2 Education Tax Credits<\/a><\/strong><\/em><\/li>\n<\/ul>\n<p><a name=\"529-plans-can-help-students-reduce-need-to-borrow-for-college\"><\/a><\/p>\n<h2>529 plans can help students reduce the need to borrow for college<\/h2>\n<p>If you start saving $25 per month when your child is born, you\u2019ll end up with $5,400 toward their education after 18 years. And if you assume a 7% annual return, the account will ultimately be worth $10,768. With better investment performance and higher contributions, you could save enough to cover a good chunk of a college education.<\/p>\n<div class=\"basic-box\" style=\"border: 1px solid #E2E4E6;\"><div class=\"basic-box__inside\"><b>How else can you pay for college?<\/b> Other options include <a href=\"https:\/\/www.credible.com\/blog\/student-loans\/college-grants\/\">college grants<\/a>, <a href=\"https:\/\/www.credible.com\/blog\/student-loans\/college-scholarships\/\">college scholarships<\/a>, and student loans. Be sure to fill out the FAFSA and go with financial aid you don\u2019t have to pay back first. If you do need to borrow money, it\u2019s usually a good idea to start with federal student loans before taking out private student loans.<\/div><\/div>\n<p>Parents often use <a href=\"https:\/\/www.credible.com\/blog\/student-loans\/parent-plus-vs-private-parent-loans\/\">Parent PLUS Loans<\/a> to help their child pay for school, but these aren\u2019t always the best deal. If you have excellent credit, you might qualify for a better interest rate with a private student loan. If you decide to take out a private student loan, be sure to consider as many lenders as possible to find the right loan for you.<\/p>\n<p>Credible makes this easy \u2014 you can compare prequalified rates from multiple private student loan lenders in just a few minutes.<\/p>\n<div class=\"basic-box\" style=\"border: 1px solid #E2E4E6;\"><div class=\"basic-box__inside\"><span style=\"font-size: x-large;\"><strong>Compare student loan rates from top lenders<\/strong><\/span><\/p>\n<ul class=\"list--iconArrow accent--isGreen\">\n<li>Multiple lenders compete to get you the best rate<\/li>\n<li>Get actual rates, not estimated ones<\/li>\n<li>Finance almost any degree<\/li>\n<\/ul>\n<p style=\"text-align: center;\"><a class=\"btn btn-warning\" href=\"https:\/\/www.credible.com\/student-loans\">See Your Rates<\/a><\/p>\n<p><small>Checking rates will not affect your credit<\/small><\/p>\n<p><!-- TrustBox widget - Micro Combo --><\/p>\n<div class=\"trustpilot-widget\" data-locale=\"en-US\" data-template-id=\"5419b6ffb0d04a076446a9af\" data-businessunit-id=\"5536ec090000ff00057eebe7\" data-style-height=\"20px\" data-style-width=\"100%\" data-theme=\"light\"><a href=\"https:\/\/www.trustpilot.com\/review\/www.credible.com\" target=\"_blank\" rel=\"noopener noreferrer\">Trustpilot<\/a><\/div>\n<p><!-- End TrustBox widget --><\/p>\n<\/div><\/div>\n<p><em><strong>Learn More: <\/strong><\/em><\/p>\n<ul>\n<li><em><strong><a href=\"https:\/\/www.credible.com\/blog\/personal-finance\/investing-for-beginners\/\">Beginner\u2019s Guide to Investing in 4 Steps<\/a><\/strong><\/em><\/li>\n<li><em><strong><a href=\"https:\/\/www.credible.com\/blog\/student-loans\/return-on-investment-by-university\/\">Colleges With the Best Return on Investment<\/a><\/strong><\/em><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>A 529 plan is a type of college savings account that helps you save on taxes while putting money away for college. While it\u2019s a good idea to start saving as early as possible, you&hellip; <a class=\"more \" href=\"https:\/\/www.credible.com\/blog\/student-loans\/529-plan\/\">Continue reading<\/a><\/p>\n","protected":false},"author":96,"featured_media":41142,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"om_disable_all_campaigns":false,"inline_featured_image":false,"footnotes":""},"categories":[2],"tags":[1511],"class_list":["post-41135","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-refinance-student-loans","tag-parents-college","529-plan-invest-in-a-college-savings-account-early","post_tag-parents-college"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>529 Plan: Invest in a College Savings Account Early - Credible<\/title>\n<meta name=\"description\" content=\"A 529 plan can help you save money for college, either for you or your child. 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